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The ban on upfront fees to tenants – what does this mean for you?

Posted on 2017-01-03

One of the most controversial – and unexpected – announcements in Philip Hammond’s first Autumn Statement as Chancellor was the ban on upfront fees to tenants.

This came after a long period of lobbying and pressure on the Government – led by Liberal Democrats peer Baroness Olly Grender and journalist Vicky Spratt – to either make fees fairer or abolish them completely.

Spratt, long-time London renter and Features Editor for online magazine The Debrief, set up a campaign called #MakeRentingFair and launched a petition 'Make Renting Fair in England', which achieved more than 258,000 signatures.

The ban could begin within the next year, following a consultation period. There has, however, been significant concerns raised on the move, in particular from letting agents and industry bodies, but it's highly unlikely that the Government will backtrack on its proposals now.

What, though, does this mean for UK renters? Below, we take a look at some of the possible pros and cons of the proposed ban on upfront fees for tenants…

The pros (less upfront cost?)

Your upfront costs, at the beginning of a tenancy, should be a little cheaper. This means you shouldn’t have to raise or save as much money if you decide to apply for a new rental property. The changes proposed by the Government could take away this initial cost and the variation in price for upfront fees - as they can vary depending on which letting agent's managing the property. 

The proposed ban should also stop, or at least limit, the impact of 'gazumping'; where tenants are charged a fee when applying for a property, only to then lose out to someone who's willing to pay more. 

The cons (could rents go up?)

Lettings agents might say they have no choice but to pass on the extra costs to landlords who, in turn, may pass them on to tenants through increased rents.

Industry experts and commentators have warned of a possible ‘boomerang effect', where those who are supposed to be helped by the ban actually end up suffering the most because of higher rents.

The Association of Residential Letting Agents and the National Landlords Association have both talked of the negative effects that the ban could have on tenants. While tenants might see it as a positive thing in the short-term, with lower initial costs, the two bodies say that costs may actually be higher in the long-run, as agents and landlords try to replace lost income.

What could landlords do?

Landlords saw an increase in legislative changes in 2016, with the additional 3% stamp duty surcharge and changes to the Wear and Tear Allowance; and there'll be more of this to come in 2017, with mortgage interest tax relief gradually phased out from April. This means that some landlords will come under an increasing level of financial pressure.

Some letting agents have warned that they'll have no choice but to recoup lost revenue by charging landlords a higher management fee. Landlords may even decide to go it alone, which could impact the traditional relationship and service levels between a professional managing agent and tenants.

When will the ban come in?

As always, there's no knowing anything for sure until the exact details of the fees ban become apparent. The consultation period's expected to be lengthy but will allow all sides to put their points across; only then will things become a little bit clearer. With the exact timelines unclear and growth in rental values slowing, it's likely that many prospective tenants will still move to new homes in the meantime - if the right property comes along. 

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